Pistol Corporation purchased 100 percent ownership of Scope Products on January 1, 20X6, for $60,000, at...

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Pistol Corporation purchased 100 percent ownership of Scope Products on January 1, 20X6, for $60,000, at which time Scope Pro

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Answer 1

Answer #1

1. Equity Method Journal Entries for Pistol Corporation.
Under the Equity Method, The investing entity records the initial cost of the investment in the balance sheet investment account. The equity method seeks to reflect any subsequent changes in the value of the investee business in this investment account (such as Income, Dividend, etc).

Year	Particulars	Debit($)	Credit($)
20X6
1a	Investment in Scope Products	$60,000
	Cash		$60,000

1b	Cash	$8,000
	Investment in Scope Products		$8,000

1c	Investment in Scope Products	$23,000
	Income from Scope Products		$23,000

1d	Income from Scope Products	$4,750
	Investment in Scope Products		$4,750
	{ ($60000-$12000-$29000) / 4 years }
20X7
2a	Cash	$10,000
	Investment in Scope Products		$10,000

2b	Investment in Scope Products	$31,000
	Income from Scope Products		$31,000

2c	Income from Scope Products	$4,750
	Investment in Scope Products		$4,750
	{ ($60000-$12000-$29000) / 4 years }
20X8
3a	Cash	$10,000
	Investment in Scope Products		$10,000

3b	Investment in Scope Products	$39,000
	Income from Scope Products		$39,000

3c	Income from Scope Products	$4,750
	Investment in Scope Products		$4,750
	{ ($60000-$12000-$29000) / 4 years }


2. Calculation of Balance in Investment in Scope Products.

Particulars		Amount ($)
Initial Investment Amount		$60,000
Add : Share of Income
20X6 = 23000
20X6 = 31000
20X6 = 39000		$93,000

Less : Dividend Received
20X6 = 8000
20X6 = 10000
20X6 = 10000		-$28,000

Less : Patent Amortization
$ 4,750 * 3 years		-$14,250

Balance in Investment in Scope Products Account as on Dec. 31 20X8		$110,750

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Answer 2

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